A business owner’s guide to divorce
If you own a business and you’re going through a separation or divorce, you need to think about what kind of impact the split can have on your business. Is it included? Does the structure matter? What’s it worth? Let’s take a look.
In Family law, any interest in a business or company can be considered in a relationship property settlement. It varies case to case depending upon the structure of the company and the history of the parties behaviour and dealings, but in most cases the business is included as an asset for your division, occasionally it is treated differently.
It doesn’t matter what the structure of the business is, whether the business is a partnership, company, or sole trader, it will be carefully considered and most likely included as an asset as part of the property pool in your settlement.
Will you automatically be granted half of the business? No, absolutely not.
When valuing a business in divorce or separation, the law is only concerned with the value of the owner’s share in the business, not the entire value. For most couples, however this will be the entire value of the business.
When working out a property settlement, the value of the business must be determined. The valuer (usually an Accountant) will consider whether a business is ongoing, or if its activities have stopped; and whether the business’s earnings are stable, and if the business has any “goodwill”.
Valuation of a business is a complex process and requires expert accountant input as there are various methodologies that might be appropriate to get to a correct value.
If your business is structured as a sole trader, it’s likely its being run by a tradesperson or professional consultant, with few employees other than you. In most cases, a sole trader business will be kept by the person who has the skill and the training, and again, it depends largely on the business whether any substantive value will be applied to this type of enterprise.
If two partners are in business, they can choose to continue to operate the business. However, in most cases, one partner will buy out the other partner, or they will sell the business entirely.
If a business is structured as a company, what happens to it in divorce depends on whether it’s a family company or has third party shareholders.
If it’s a family business, it will be treated much like spouses in partnership.
If it has third party shares, then the value of the company’s shares will need to be determined to be included as part of the property pool.
It’s essential to get legal advice when dealing with a business during your separation or divorce.
If you need help with separation, divorce, finalising a property settlement or any other aspect of family law, please contact Michael Lynch Family Lawyers on: (07) 3221 4300 or email: [email protected]
